Cost Reduction Notes

7/27/2019 Cost Reduction Notes

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©SKANDA Kumarasingam

Email [email protected]

www.profitmaps.com.au

94 Ideas for Cos

The first performance requirem

responsibility for a business is to

minimum costs of staying in bu

needs and jobs of tomorrow.

-Peter F Drucker

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02 9920 1916 or 0437 627 078

Reduction and Profit Im

ent in a business is economic performance. In

produce a profit adequate to cover the cost of capi

iness. Adequate profitability alone can provide

Profit Mapswww.profitmaps.com.au

ntact – 0437 627 078 or (02) 9920 1916Email – [email protected]

rovement

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Email [email protected] 02 9920 1916 or 0437 627 078


Introduction to 94 Ideas for Cost Reduction and Profit Improvement

“Do you want to know 50 great profit building ideas that you can put to immediate use in your

business to increase profits and reduce costs?”

If YES read all these ideas that have been implemented by clients and have benefited them giving their

businesses dramatic boost in profitability. Most ideas can be put to action immediately. Each idea has the

potential to give you many %points increase in net profits.

Research shows profits increase by 4%-56% and costs reduce by 18%-37% within 2 years using the

simple 5 step process called the Profit Maps Model. Usually a 5% reduction in cost is adequate to

turnaround most loss making businesses.

Businesses can calculate the value of the savings by these 2 simple formulas

If the business made a loss

Total Costs and Expenses = sales + absolute value of net loss +/- income tax = say XMinimum Savings you will make in 2 years = 5% of X (which was calculated above)

If the business made a profit

Total Costs and Expenses = sales + net profit +/- income tax = say Y

Minimum Savings you will make in 2 years = 5% of Y (which was calculated above)

So how much can you save? Improve your profits by?

General Tips about Profit Improvement and Cost Reduction

1. Recycle and reuse. The plastic bags, envelops and other packaging from your suppliers make good

trash bags. Another example is to use standard envelops with boxes printed on the face of these

envelops where you provide information for internal mail circulation. When received, the recipient

can again reuse it to send his or her mail to another internal employer.

2. How about saving and reusing photocopy papers or printing where there were errors in the

photocopied or printed document. If it does not contain confidential information these wasted papers

can be used for writing or scribbling notes by staff than using new notebooks and notepads. Ideally

stop buying new notebooks and notepads. You save costs and the environment.

3. Learn to photocopy and print on both sides of the paper. Buy photocopiers and printers that can do

this with ease and bring in a company policy requesting all staff to photocopy on both sides of the

paper.

4. Insulation for your roof, attic and walls (including outer wall electrical outlets) will absolutely save

you money over time. Much of this, you can do yourself. While you are at it, check the weather

stripping around the doors to the outside; if you can see daylight between the door and frame --

purchase a roll of adhesive foam door seal and close those cracks.






5. Consider investing in reusable items. Rechargeable batteries are a good option if your battery

consumption is high – the question you should ask yourself is: why is your battery consumption high

and what can be done to reduce that?

6. Have a no smoking policy or reduced smoke-time. Many staff members spend a lot of time outside

office in designated smoking areas. Sometimes other staff members accompany them jointly wasting

a lot of productive time.

7. Limit alcohol at company premises and functions. Alcohol is an added expense you may be able to

eliminate altogether, or at least significantly reduce.

8. Stop gambling within your organization such as staff getting together and pooling funds for Lotto and

footy tipping! These are personal acts of staff during company time.

9. Stop using paper napkins and paper towels. Cloth towels are more absorbent and can be used over

and over again. They also clean much better than paper.

10. Think about every purchase before you make it. Ask yourself whether you need it or simply want it.

Do you already own something that will perform the same task? Is it of good quality or needs

replacing after a few uses? Most importantly, are you willing to put off your profit improvement and

cost reduction goals to have it? If an item is superfluous, just say no.11. Use the 24 hour rule. Wait 24 hours before making the purchase for non-critical items.

12. If you subscribe to non-essential services, like satellite radio, prepare yourself mentally to cancel the

service and then call their accounting department. Advise them that you are cancelling - they will

transfer you to several people but each time tell them the truth - you want to cancel because you

cannot afford the service. If you persist, they will offer you a discount - a substantial discount - to

continue service because it is much cheaper for them to keep a customer than to obtain a new one. If

they won't give you a discount - cancel the service and do without it while you save some money.

Warnings about Profit Improvement and Cost Reduction

13. Do not only consider the least expensive option – that is certainly not always the best option. Many,

many times, an initial savings will cost you more later on. Carefully consider life cycle cost in addition

to the acquisition cost.

14. If you buy pre-owned, check carefully… this is especially true of cars. It’s worth the investment to

have a mechanic check the car (unless you’re perfectly competent in that area – are you sure?).

15. Don’t go completely overboard. It’s great to be frugal; it’s not great to be a mean-spirited miser. If

staff needs something definitely look for bargains but keep your priorities straight.

Telephones and Communication

16. When it comes to telephones consider consolidating all your landlines, voice over IP and your cell

phones. In this way you will be able to rationalise the number of lines and methods of communication

and be reducing costs. You can also use the rationalised list to negotiate with your service provider or

its competitors to obtain better prices.

17. When it comes to cell phones consider if most staff members require it. Again consider rationalising it

to staff members who work at outside locations and need to be contacted by head office or vice versa.






18. When cell phones are provided have clear rules on usage. Any violation of this must be charged to the

employee and recovered from their pay.

19. Consider texting or sending short service messages or e-mails to staff in foreign locations or those

who may be travelling abroad with whom you may want to communicate.

20. Consider using voice over IP such as Skype or gchat from Google. For example Skype charges AUD

4.00 for unlimited calls to any phone or mobile in Australia per month. Whereas Optus charges AUD109.00 per month for the same privilege.

21. Cable television- consider if this is necessary for your company. Rather than having special cable

television in your lobby it may be a good idea to use preview. Your customers or suppliers who use

your lobby would not seek to view complete shows or movies that are shown on cable television

during their office hours.

22. Understand your traffic patterns and what you spend better than what your telephone

company knows or tells you. Many businesses rely on their carrier to tell them what to do. This is

ill-advised and reflects laziness on the part of the person making the determination. Given the choice,

a telecom carrier will always sell you a gold plated Mercedes, whether you need it or not, on a 50 year

lease, which only increases in cost every year, that you can never get rid of, even after the wheels

have long fallen off. Don't fall for this trap. You make the rules. It's your money!23. Package your services into something that you can explain to the carrier market in their

terms. Measure service by origination, type, distance, and per unit expense. Roll it all up from perfect

granularity to absolute 100,000 foot level.

24. Identify the minimum level of service that is required to meet the needs of your organization.

This doesn't mean cheap, it means that the combination of services you buy should exactly meet your

needs, being neither greater than, nor less than your needs. You don't have to pay for widgets you

can't use, and you don't want your users to go without services which are critical to the success of

your business.

25. Identify the carriers that provide service in the locations where you originate a need for

service. For instance, it doesn't matter if XYZ carrier has nationwide service to major cities, if your

main city is not on their list. Get market comps from reliable sources. The carriers may be telling youthe best rate is a nickel, while other may be paying a penny, and they will never enlighten you beyond

that which they need to. Other top performing end users probably have the best rate information,

which you can informally exchange. Be sure not to just look at the leading rates that are generally

followed, but look at the entire list of services. Recognize that the largest companies with the highest

volume do not necessarily pay the best rates. They often suffer from ossified contracts that have been

carried forward after far too many "good guy deals" have been cut. Carriers will always be quick to

cite others who are paying more money than you are. Don't worry; they only cite the higher ones,

keeping the ones getting a good deal private.

26. Invite every carrier to compete for your business that has even the slightest chance of winning

your business. Even if it’s just a single circuit. The more the better. Don't invite carriers who you

wouldn't seriously consider giving business to, which is called using "stalking horses." If you do this,the market won't respect you. Don't give any one carrier any advantage that every other carrier is not

getting. Make it fair. Use a level playing field. Make everyone compete using the same information,

released at the same time, and under the same rules. Don't give anyone more time than you could

perform within. Open the information from all of the carriers in private, sharing it with the minimum

number of internal people required to do the work. The more people that know of your internal

influences, the more they will share it with the market, and not to your benefit.

27. Set the pace. Your incumbent carrier will use excuse after excuse to slow down the process. Why

should they help you speed the process which will only result in their having to write down part of

the fat profits they are making on your business? This is not a time to get nostalgic. Set your terms,

your timing, and award to the carriers who earn your business. Not in the past. In the present. Once

you have tentatively identified a carrier, make sure to come up with a list of 2 or 3 others that canalso suffice. Never tell any carrier what the outcome is until you have your contracts signed. It’s a






very small vendor community, and your information will be shared (again to your detriment) if you

disclose it before the deal is done.

28. Measure everything and report your margin of success to your executives to they can understand

your performance.

IT Department Telecommunication Cost 29. Your IT department should save on systems connectivity costs, including WAN circuits, T1-type

services, and other telecom services used for remote office connectivity.

30. Identification of costs - Prepare a physical report listing all of your data line, circuits, etc., in place for

remote office connectivity. Include information that will help you evaluate the service for appropriate

need later, such as location, bandwidth, and number of users at the location. Conduct an inventory of

all telecom expenses from your recent telecom carrier invoices. Telecom expenses can be as high as 1

to 2 percent of revenue or more depending on the makeup of your company. Office changes, growth

by acquisition, and other issues can create situations where there is "low-hanging fruit" by inspecting

what you're paying for. Reconcile the invoice detail with the telecom connectivity inventory list

created in the first step. That is, compare what you think you have with what you are getting charged

for. For large companies or even small ones with many offices, this is no small feat. So prepare

yourself for an intense project or seek outside help from those who deal with telecom invoices for aliving.

31. Total up the circuits/lines that are no longer in use or that can be eliminated. Measure this along with

the savings potential you have by reducing the bandwidth of certain remote office services while still

providing adequate response time.

32. Savings opportunity exists in: Lines, circuits no longer used or needed, ability to consolidate remote

operation services, ability to reduce bandwidth while maintaining acceptable processing speeds.

33. High-growth companies with many offices often have dormant services in place or more capacity

than needed in many locations. Also if you aren't reconciling your data-related invoices, you're almost

always overpaying.

34. There are many companies that focus on identifying and recovering costs for your company. One of

the benefits is that, these companies pay or fee is based on the results of the dollars recovered or

saved. Its approach helps a company in three ways: analysing past charges and recoupingoverpayments. This can be up to a year or more of overpayments and can be a tangible amount

depending on your environment and company history; reviewing contracts and negotiating with

vendors to establish appropriate-use contracts; evaluating your current telecom needs and

recommending cost-effective solutions.

Heating and Cooling

35. In many parts of the world and Australia in particular during summertime the temperature increases

to soaring limits. It may be a good idea at this time to harvest solar energy and use it for your heating

and cooling needs. The government also provides many incentives and rebates are changing over tosolar energy usage.

36. During the hot summer season it may be a good idea to change working hours so that your employees

who work in certain worksites and factory area where the temperature rises to very high levels can

start early and finish before the temperature rises. Alternatively major work can take place during

the night shift.

37. Install ceiling fans where possible. This was the means used before air-conditioners came. This is an

excellent way to save on heating and cooling costs.

38. Open the windows. Unfortunately in many office buildings it is not possible to open the windows

since it has been sealed externally. These buildings depend on electricity to maintain the temperature

within and for lighting needs. Arranging to open the windows will reduce not only your heating costs

but also lighting.






39. If your heating system works by gas you may be able to speak to your service provider and request a

shut off during the warmer months. This will help you to save on fixed costs. If this is not possible you

may be able to sign up for a pay as you use package.

Electricity

40. Use energy efficient bulbs. Again the government provides many incentives and rebates reducing the

overall costs of these energy-efficient bulbs.

41. Install systems and methods where light bulbs in certain areas are switched off automatically. I have

seen in certain areas where security lights or floodlights are switched on during the nights and

forgotten to be switched off in the mornings. Having a system that switches off the power supply to

these security or floodlights during the day makes the system automatic and saves substantially on

electricity as these lights consume a huge amount of electricity.

42. Request and educate your staff to shut off and switch of all electrical equipment and laptops before

they leave office at the end of the work day. Many people do not switch off electrical equipment and

laptops when not in use. The main reason for this may be convenience to them but not to the

business. Routine checks must be made to ensure that this policy is adhered to. This not only saves on

electricity but also reduces risks of electrical fires when staff is not available to handle them.

43. Request and educate your staff to only use electricity when absolutely necessary. Many offices can

use natural lights during certain seasons and times of the day. This is also true when you open the

window to regulate your internal environment and its temperature.

Water

44. In certain work areas workers have a shower before the commencement of work or after the

completion of work. Where shower facilities are provided use shower reduction kits. Again such

shower reduction kits are provided by the government and if not many incentives are available for

using them.

45. Request and educate your workers to limit shower time.

46. If your toilets and commodes do not have two buttons for half flush and full flush change or install

them. This will save substantial amounts of water during the year or on a long-term basis.

47. Gentlemen's restrooms should be fitted with adequate urinals. This again stops water being flushed

down toilets and commodes.

48.

Wherever possible use water-saving cubes in urinals. This is a new invention where you do not haveto use water as the cubes are capable of purifying the environment and urinals by using odour killing

chemicals and bacteria.

49. Use taps which stop automatically after dispersing a limited amount of water. This is a good idea

where you have people washing their hands in public toilets. If more water is required all that you

require is to push a button. This tops excess water usage and leakage.

50. Where possible use waterless hand sanitizers.

51. Repair leaking toilets and faucets.

52. Use mulch and other and water reducing systems for your office lawn such as drip systems and

providing additional shades to reduce evaporation.

53. Reduce the duration of watering and the number of days that you do it weekly.






54. If your business uses water filled in open tanks, use covers to provide additional shade to reduce

evaporation. Some companies have swimming pools in recreational buildings which may require the

same treatment.

55. Learn to harvest rainwater and save them in huge tanks. You will be able to use this and save a

ridiculously large amount of cash you spend on water.

Entertainment

56. Stop providing free tickets and corporate boxes for many sports events or other at functions and

activities.

57. When senior staff members have food and entertainment allowances fix daily limits.

58. Even when senior staff members may have food and entertainment allowances have clearly defined

policy on how the money can be spent and also for what purposes it can be spent on.

59. Request and educate staff not to order food by delivery or room service.

60. The company must have a system where the staff member first uses his/her personal credit card for

food and entertainment which will then be reimbursed by the company on actual bills. If the staff

member is unable to provide the proper supporting documents and bills or has spent on items which

are not allowed by company policy that payment will be withheld or paid net.

61. Stop buying or rationalize buying the daily newspapers, magazines, periodicals and books for

management and staff to browse and enjoy during office hours.

62. Do not order fresh flowers for every manager in the office. You may use fresh flowers in the main

reception or lobby area and even better if you can use natural looking artificial flowers and flower

arrangements which are kept clean and free of dust.

63. If the company provides annual trips to all members of staff it must be provided on the basis of costs

reduced or profits improved during the particular year. For example you may be able to tell your staff

that if certain costs are reduced by 20% they would be rewarded by this particular company trip. If

this does not happen you do not have to spend that money. However if staff is able to reduce costs as

requested , you win anyways

64. Certain companies have the habit of taking their key management to exotic locations in faraway

places for a few days to brainstorm and develop corporate strategies. Whilst I do not condemn this

great idea it may be best to reduce the cost by having fewer days with a tight agenda and less

travelling to do.

Purchase of Assets and Their Usage

65. Many departments buy new furniture and equipment whenever the need arises or if within budget

limited without further thinking. Before you decide to buy new items look carefully at the furniture

and equipment that may be in your storage. This is quite possible when many organisations today

closedown facilities and dump the furniture and equipment in storage facilities. To do is effectively

however you would need the support of your accounts staff who must keep track of all the fixed

assets and have full control of its movement.

66. Before purchasing assets it may be a good idea to ask other departments or other strategic business

units if they have such assets and you could purchase them at reduce costs, or maybe even share

them. This will not only save money for your department but will also help the selling department or

the sharing department to reduce its own costs.






67. If you're a small start-up company you may be able to buy most of your assets from garage sales or

closedown auctions. Even if you had to spend a little extra on refurbishing and cleaning it up you

would be able to save substantially on them.

68. Another option which most companies consider now is to buy from online auctions stores such as

eBay.com and overstock.com

Food and Drinks

69. Reduce variety for coffees, tea and milk purchased for staff use. Many companies are in the habit of

buying different types and brands of coffee, exotic and different blends of tea and milk to cater to the

fancies of each and every staff member. When you do this the company will incur extra costs in

buying small quantities of a large variety of items. You may be able to ask for staff suggestions before

you make the switch. Practise variety reduction at every level.

70. Always have limits to individual orders. Do not buy large quantities or bulk. Only buy what is

required for, maybe a week or two. This will not only reduce pilferage but also spoilage which is quite

possible as certain food and drink items have expiry dates.

71. Eliminate certain items from your food and drinks lists such as free biscuits, fruits, nuts, soft drink

and soda for your staff.

72. Install a water purification system for drinking water rather than ordering bottled water. Maintain

the purification system in good working order.

73. If your company has a tradition of providing free breakfast on certain days of the month or a

barbecue it is a good idea to limit the number of days this is done on a month. Also have a fixed limit

on how much the staff can spend on these occasions.

Automobiles and Related Costs

74. Request your staff to always consider, “is this trip really necessary?” When they ask this question

they may be able to look at other options such as sending the product or package by courier,

delivering it at the stated location on their way home etc.

75. Request staff to work together to consolidate trips or to reduce additional trips made during the day.

I have seen staff from various departments travelling to a particular site at the same time in different

vehicles. Worst of all you will see that each department has its own vehicle for such trips. Not only doyou see this happening between departments but you will also notice this amongst staff working in a

particular department. Staff members may go to a particular location but they do not plan or organise

the at times together so they may be able to do that by sharing a trip. For example to particular staff

member may be leaving to a customer location at eight o'clock and another member leaving 10

minutes later to a location in the same route. Of course I understand that is not possible all the time.

However what is important to note is currently there is no active method of planning and organising

visits to work locations.

76. Always check the tyre pressure of your vehicle. Check spark plugs. Use new or good quality oil for the

vehicles. All these steps will reduce the cost of maintenance and running.

77. Consider keeping a log and monitoring how often and how far you drive each and every business

vehicle. In this way you will be able to negotiate reduced insurance.






78. Less driving of vehicles also saves costs on maintenance, tyres, consumables and fuel.

79. Request and educate staff to change their driving styles to an ideal speed and to be less aggressive in

driving. This again would save on vehicle maintenance, consumables and fuel.

80. Staff who travel long distances should be given special or advanced driving lessons. Accidents happen

which can cost the company a lot of money and staff lives. Put limits on the amount of driving hours

allowed during a 24 hour period.

Staffing Costs-Getting More without Adding Costs

81. The productivity factor- Obviously, one of the ways any manager can accomplish more with existing

resources is to improve the productivity of those resources. Improving your staff's productivity is an

ongoing effort and one that's important for the employee, your company, and for you as a manager.

82. Train and develop your employees—Target specific training opportunities for each employee that

helps him or her do more. The training can be internal programs that cost little to nothing other thantime from one of your senior people. Or, you can use outside vendor programs that can teach specific

skills to the employee that improve his or her production capability.

83. Coach and focus employee efforts—Too often, we allow our employees to "find their own way."

Being more proactive in delineating employee responsibilities, focusing their efforts on important

tasks, and coaching them for higher productivity is a good thing. Expect higher productivity and you

will often get it.

84. Give them tools—Our employees want to be productive and to produce quality results. Invest in

your employees by giving them the tools that boost their productivity.

85. Incorporate a quality improvement program—Often employee productivity is hampered by poor

quality in the delivery of their efforts. More than not, they can't see the problem; it's the "can't see the

forest for the trees" issue. For example, if your programming staff has to fix lots of problems that are

discovered after software enhancements are put into production, you have both a client service

problem and a productivity problem. Every time I have implemented a quality improvement program, I have met resistance from my senior people. Only after showing them the numbers before

and after the quality program do they actually believe it improves the team's output.

86. Give extra incentives for more work —In a couple of situations you have an inordinate amount of

backlog, need to reduce the backlog level, but don’t want to hire more people. To attack the problem,

offer staff incentives to work on extra projects "on their own time," which meant outside of normal

hours. This type of program can be very effective, but you have to be careful to avoid creating an

impression that you are paying for overtime. Hourly people get overtime, not professionals. You also

only want to authorize the additional work to those who are doing an acceptable job; in other words,

the way to qualify for the incentive work is by doing your normal job well. Use a program like this

only in short spurts, say three to five months, versus allowing it to become a normal work program.

87. The perception factor -Improving your staff's productivity can actually be accomplished bychanging the perception of the team's productivity. I'm not advocating any type of deception, but

there are things you can do to make the team appear to be more productive.

88. Organize for client service —Create a structure and implement processes that help your employees

quantify issues, implement change in an orderly manner, escalate appropriate issues, and follow up

consistently. Improving client service automatically makes your team appear to be more productive.

89. Manage client expectations to your capacity—If your team is overcommitted to the capacity of

what they can deliver, the natural conclusion will be that they're not getting the job done. Manage

your client's expectations to your team's actual capacity for delivery and it will appear that the team

is more productive. We should be managing this way anyway, but it's easy to get overcommitted.

90. Filter the request backlog in your department —Review the requests coming into your

department from stakeholders. Quite often, requests are made for items that are not necessary or

that do not provide real value to the business. Reducing the backlog and establishing more stringent

approval requirements for new requests can create a perception of improved response.






91. Over communicate —communicate the status of outstanding issues more than you have been.

Nothing makes a customer feel more frustrated than not knowing the status of a support problem or

outstanding request. Keeping your customers and users "in the light" creates a perception of being

more productive and improves client service.

92. Over deliver—Coach your staff to take the extra steps in supporting your stakeholders. Little extras

go a long way toward improving service, and higher satisfaction creates an image of responsiveness

and productivity.93. Publish your team's accomplishments—You might be surprised at how much we all forget about

what we accomplish every month. It's so easy to get caught up in the day-to-day issues and problems

that we forget to reflect on the things that were completed in the past. Start tracking your team's

accomplishments and publish the highlights monthly. If we forget what we accomplish, I can

guarantee that the customers don't know all the things we do. Share this knowledge with them, and

you may find that customers really are interested and that their perspective of how busy you are in

your department or business unit goes way up.

94. Before you start trying to improve the productivity of your staff, conduct an assessment to determine

how productive they already are. If possible, establish a baseline and measure the improvements as

you implement specific actions that either improves your team's real productivity or the perception

of its productivity. Capturing real data in key areas will help you substantiate what’s really

happening.

Conclusion

The more you understand the power of this list, the more you’ll realize you must get your hands on all

the other ideas to benefit your business. Go to www.profitmaps.com.au to obtain and use a simple 5 step process that can do this for your business.

As mentioned each idea has the potential to increase your net profit margin by many % points. Research

shows profits increase by 4%-56% and costs reduce by 18%-37% within 2 years. Usually a 5% reductionin cost is adequate to turnaround most loss making businesses.

To obtain the maximum benefit and ensure that the actions result in improving your bottom-line youneed a structured methodology or a process on an on-going basis such as the 5 step process

suggested in www.profitmaps.com.au .

Cost Reduction Notes

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